Selling your Home to Avoid Foreclosure? What To Know About the ‘Equity Exit’ Strategy

What Is an Equity Exit Strategy?

Ever heard of an equity exit? It’s basically a smart move you make to sell your home before the bank forecloses. Instead of letting things go south, this approach lets you tap into any leftover equity—pay off your mortgage, settle up, and avoid the credit hit of foreclosure.

Why Homeowners Are Turning to Equity Exit

Unlike a short sale, where you sell for less than you owe with lender approval, the equity exit focuses on selling when the home still has value. Investors have long used this tactic to minimize losses in falling markets by acting fast. Now, more homeowners realize that selling before foreclosure can save them money, protect their credit, and let them control the timing of their move.

Key Benefits of an Equity Exit

• Protect Your Credit: Foreclosure can haunt your credit report for seven years, affecting loans, credit cards, and even rental applications. Selling early helps maintain your credit standing.

• Keep Some Equity: Acting quickly might allow you to keep some cash from the sale to cushion your next steps, like covering moving costs or rental deposits.

• Control Your Timeline: Instead of a rushed foreclosure process, you decide when and how to move forward, giving you the chance to plan your next chapter thoughtfully.

The Reality: A Tough Choice But A Fresh Start

Selling your home under pressure isn’t easy and might mean accepting less-than-ideal offers. You will lose your home, and may need to downsize or rent as you recover financially. However, this strategy puts you in the driver’s seat, not the bank, giving you power over your future.

Alternatives to Consider

Equity exit is one of several options. Other approaches like loan modification or a short sale might fit your situation better. Loan modifications can reduce payments by adjusting your loan terms, while short sales involve settling the debt for less with lender approval. A trusted adviser can help you explore all paths and pick the best one for you.

Taking the step to sell your home before foreclosure is never easy, but an equity exit strategy can be a valuable way to protect your credit, salvage some equity, and take back control when faced with financial hardship.

Source: realtor.com

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